Dillon Phillips, 10, left, and his brother, Damon, 7, of Raleigh skate during the opening of the Ipreo Raleigh Winterfest ice skating rink in City Plaza in downtown Raleigh Friday, November 22, 2013. Raleigh's One Bank of America Plaza, the brown-and-tan building to the right, and all four of City Plaza's glass-and-metal retail pavilions can be seen in the photo. ehyman@newsobserver.com

Dillon Phillips, 10, left, and his brother, Damon, 7, of Raleigh skate during the opening of the Ipreo Raleigh Winterfest ice skating rink in City Plaza in downtown Raleigh Friday, November 22, 2013. Raleigh's One Bank of America Plaza, the brown-and-tan building to the right, and all four of City Plaza's glass-and-metal retail pavilions can be seen in the photo. ehyman@newsobserver.com

Highwoods acquires downtown Raleigh office building for $92.3M

Highwoods Properties announced Monday that it has acquired downtown’s One Bank of America Plaza, one of the Triangle’s biggest office buildings, for $92.3 million.

The deal more than doubles the amount of office space the Raleigh real estate investment trust controls in downtown, where it already owns the 33-story PNC Plaza building.

Highwoods acquired the 374,000-square-foot building at 421 Fayetteville St. from The Simpson Organization, the Atlanta investment company that paid $47.1 million for it in 2005. The acquisition includes the underground parking garage directly under Fayetteville Street as well as the four glass retail pavilions on City Plaza.

One Bank of America Plaza is now 82.1 percent leased, a figure that is well below the 95 percent occupancy rate for the entire downtown office market, according to Karnes Research of Raleigh.

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In recent years, Highwoods has made a habit of acquiring well-located buildings with chunks of vacant space, confident of its ability to increase occupancy and eventually rental rates by making structural and operational improvements. The average rents in place now at One Bank of America Plaza are about 10 percent below the market average, according to Highwoods.

“We think it’s a very good location,” Highwoods CEO Ed Fritsch said. “Raleigh’s living room is right outside its front door.”

The company’s $92.3 million purchase price includes $8.3 million that the REIT plans to use for near-term improvements to the 17-story building’s common areas. One Bank of America Plaza was built in 1986, and The Simpson Group made renovations to the building in 2007.

“We think the building has very good bones,” Fritsch said.

He said Highwoods has been seeking to increase its presence in downtown Raleigh for several years. This latest acquisition allows it to offer downtown office space at a lower price point than PNC Plaza, which is 100 percent leased and charges some of the higher rents in the Triangle.

“We like having two price points, kind of stratifying our product down there,” Fritsch said. “We like to be in a position where we’ll be more in the deal flow given the total square footage that we’ll own downtown.”

When Simpson acquired One Bank of America the city was just about to begin millions of dollars in municipal improvements to Fayetteville Street. Although the building’s vacancy rate remains about the same as when Simpson bought it, the city’s investments have helped transform downtown into a lively entertainment district that is increasingly attractive to tenants.

Simpson had put the building up for sale in 2010, and was close to selling it in January 2011 when Raleigh-based Progress Energy and Charlotte-based Duke Energy announced plans to merge. The deal created uncertainty in the downtown office market because it opened the possibility that one of Progress’ two downtown Raleigh towers would soon be vacant.

Progress later agreed to sublease one of its buildings to Red Hat. But by then Simpson had taken One Bank of America Plaza off the market and refinanced the property with a $41 million loan.

Highwoods also announced Monday that it has sold 14 buildings in Greensboro for $28.2 million. The sale included six office buildings and eight industrial/flex space buildings. The properties contain a total of 379,000 square foot of space that is, on average, 92.5 percent leased.

The One Bank of America purchase is one of Highwoods’ largest ever in the Triangle, and its first of 2014. The company has also sold $158.8 million in assets so far this year, and announced $146.7 million in new development products.